As the world becomes one giant global marketplace, it is becoming increasingly rare to have an M&A deal that does not somehow cross some border somewhere. Also, in the wake of the financial crisis, more companies started looking to grow through acquisitions. Global M&A activity was significantly up in 2014 and that trend has continued into 2015.
The type of growth being sought will more often than not drive the type of deals being done. It could be a desire to acquire a bigger customer base, or additional human capital or a portfolio of intellectual property. If the intent is to complete a friendly merger or acquisition, proper planning (or lack thereof) can make or break a deal and significantly reduce the stress and friction that inevitably arises during post-deal integration. Of course, if the intent is more of a “slash and burn” approach, then perhaps you will have more leeway, however, a modicum of planning is still going to be necessary to get past any regulatory hurdles.
Baker & McKenzie commissioned a survey last year of 350 C-suite executives whose companies had recently completed a cross-border transaction. Of those, 49 were executives of companies in the life sciences sector. Some common themes arose when those surveyed reflected on the successes and pitfalls of their recent deals. While some of the deal features and challenges may be industry-specific, the basic steps to a successful friendly acquisition remained the same across the board. Lessons learned:
Trying to do diligence across oceans and time zones with higher cost and less time to put boots on the foreign ground to kick the proverbial tires poses some unique challenges. You need to allow enough time for sufficient due diligence and this should include building in flexibility into the schedule so that due diligence can be extended if any problematic areas are identified. Keep an open dialogue with the target’s management. This can help speed things up and also provide some local context for problems that may be identified.
Identifying risks at an early stage allows you to mitigate them by engaging with the relevant authorities before the deal closes. Again, maintaining an open dialogue and allowing time to plan ahead is critical to success. In the Baker & McKenzie survey, the 49 life sciences executives identified their key compliance challenges and how they addressed them:
Whatever the motivation behind the deal, a common theme for overcoming this challenge is building a strong argument for the acquisition that can be presented to regulatory authorities. Where regulatory approval is likely to be difficult, plan ahead and begin to address this as early as possible. Losing momentum in a deal because everyone is benched waiting on word from regulatory authorities can become costly in not just money but time and focus.
Getting the deal done will get you the headlines, but after the dust settles and the closing dinner is but a distant memory, the key measure of success is going to be generating the value on which the transaction was based in the first place. This means a well-managed plan for post-acquisition integration. Planning should begin well before the transaction closes. Businesses who fail to plan ahead risk wasting time after closing resolving issues that should have already been sorted out or worse, that the deal was not structured to take into account some local idiosyncrasy and you are left trying to jerry-rig a less than ideal solution.
One of the biggest causes of transaction failures identified in the survey was the mismatch and cultural clashes within the ranks. Cultural challenges should be identified and addressed during the pre-acquisition planning phase. This allows time for planning an effective communication and remuneration strategy to have key employees buy into the strategies, objectives and vision of the acquirer.
By now you will have noticed a general theme running through these tips for success, which is to plan ahead and beyond the closing. Stick with that and the chances of realizing the full value of an acquisition will increase exponentially.
Sonia Yung is partner in the Toronto office of Baker & McKenzie LLP. Sonia heads up their Canadian corporate and securities practice group. Baker & McKenzie has been an active participant in the internationalization of the pharmaceutical industry for more than 50 years and is among the first firms to provide focused pharmaceutical and healthcare industry advice.
[The author and her immediate family members may have long or short positions in the shares of some companies mentioned in or assessed during the preparation of this blog. Past share price performance may not be an indicator of future share price performance. This blog does not consider the investment objectives, financial situation or particular needs of any particular person. Investors should obtain professional advice based on their own individual circumstances before making an investment decision.]